EntryUpdated 2026/10/25

If You Never Sold to a Sanctioned Party, Why Do Sanctions Still Reach You?

Sanctions attach to the counterparty and also to the channels a transaction passes through: the currency that settles it, the flag the ship flies, the insurer that covers it. One connection to the sanctioning state can be enough to bring the trade within their scope.

Four hooks, and none of them is about who you sell to

Hook	What it attaches to	Can a firm choose not to use it?	What removing it costs
Settlement currencyThe broadest hook	Any trade priced in that state’s currency. A sale entirely between third countries falls inside US jurisdiction once it is paid in dollars cleared through US banks.	In theory yes, in practice rarely. Commodity quotes, hedging instruments, and long-term contracts are largely dollar-denominated.	Currency risk you carry yourself, a smaller pool of counterparties, and prices that can no longer be compared. Switching currency means replacing the entire pricing benchmark.
The clearing system	Every payment that passes through its financial institutions. An intermediary bank inside the country is enough, wherever the parties sit.	Alternative rails exist, but with fewer participants and higher costs, and using them may itself be read as evasion.	Slower settlement, and counterparties demanding heavier assurances. Banks usually withdraw before regulators act, because their own licence is at stake.
Technology content	A product containing that state’s technology. Design, manufacture, and sale can all happen abroad and still fall inside.	Redesign is possible once you know where the content is, but it sits three or four tiers down, and many firms see only the first.	Redesign, requalification, recertification. The price here is usually measured in years rather than money.
Participation by nationals	A national of that state took part in the decision or approval. A meeting or a signature can be the link.	Specific people can be walled off from specific decisions, but only with a compartmented process, and most companies’ decision records were not designed that way.	Higher management overhead, and an arrangement that may itself be questioned as deliberate circumvention. This is the hardest hook to prove you handled correctly.

Reading sanctions as “do not deal with sanctioned parties” misses all four hooks, because none of them attaches to the counterparty. They attach to the channels a transaction passes through: currency, clearing, technology, people.

The middle column is the key one. A firm can choose its customers; it cannot easily avoid dollars, the main clearing system, or parts containing controlled technology. The hooks work because they sit on infrastructure, and there is no equally serviceable second set of infrastructure. That is why the compliance perimeter follows the hooks rather than the address of the office.

Source: Impactful Creative, compiled from the jurisdictional hooks described on this page and the glossary entries on secondary sanctions and extraterritorial jurisdiction

How do sanctions differ from “you may not trade with country X”?

Comprehensive embargoes exist but are the exception. Most sanctions target named people, named entities, particular goods, or particular conduct, not a whole country.

That difference shapes the compliance work. An embargo asks only about the country; ordinary sanctions ask who the counterparty is, what the goods are, how the money moves, and how the cargo travels. The same shipment can be lawful when sold to one buyer and unlawful when sold to another, though the product has not changed.

So “we do not do business with that country” answers none of the questions that actually arise. What has to be answered is whether any step in the transaction touches one of the hooks.

What exactly is a “hook”?

A hook is the basis on which a sanctioning state claims jurisdiction. The four most common are settlement in its currency, passage through its financial institutions, incorporation of its technology, and participation by its nationals in the decision.

Dollar settlement is the broadest of them. A transaction entirely between third countries falls inside US jurisdiction once it is priced in dollars and cleared through the US system, even if neither party has ever operated in the United States. This is extraterritorial jurisdiction in practice.

None of these hooks is about who the buyer is. They attach to the channels a transaction passes through: currency, clearing, technology, people. A company can choose its customers; it cannot easily avoid dollars, the London insurance market, or parts containing American technology.

Why are secondary sanctions more effective than primary ones?

Primary sanctions prohibit a state’s own persons from dealing with a target. Secondary sanctions impose consequences on third-country firms that deal with the target, usually by listing them too or cutting off their access to the sanctioning state’s market and financial system.

They are more effective because they hand the choice to a third party. A Singapore trader breaches no law of its own; it simply has to decide whether to keep the trade or keep its dollar clearing. Most choose the latter, and that choice requires no enforcement at all.

So the force of secondary sanctions lies in expectation, not punishment. Firms that withdraw pre-emptively far outnumber those actually penalised, and most of the former appear in no statistic.

Few are penalised and many withdraw, but only the top two layers are counted

Firms actually penalisedOn the record, countable
Fines, settlements, prosecutions. This layer has press coverage, figures, and case-by-case tracking, which is why it is often used to measure the effect of sanctions. It is the smallest part of that effect.
Third-country firms added to a listOn the record, countable
They broke no law of their own and were listed for dealing with a target. This layer is also visible, and its real function is to warn everyone not yet listed.
Banks and insurers withdrawing on their ownUnannounced, but the client knows
The letter of credit is not issued, the cover is not written, the carrier declines. No regulator ordered any of it; each party simply avoided its own licence risk, and the trade fails all the same.
Firms withdrawing after assessmentNo record at all
Legal review concludes the risk is not worth it, so the contract is not renewed, the bid not made, the customer not taken. The decision is never announced and appears in no dataset.
Never attempted in the first placeNo record at all
The market never entered the plan. This is probably the largest layer, and even those inside it do not count it as an effect of sanctions, because it has become the industry’s default.

On the record and countableUnannounced, known to those involvedNo record at all

The force of secondary sanctions lies in expectation rather than punishment. They hand the choice to a third party: a third-country firm breaks no law of its own, yet has to decide whether to keep the trade or keep its access to clearing and insurance. Most keep the access, and that choice requires no enforcement.

Measuring the effect by counting penalties therefore understates it badly. Only the top two layers leave a record, while the volume sits in the three below, and those in the bottom layer do not even register it as an effect. This is also the usual source of the argument about whether sanctions “work”: the two sides are looking at different layers of the same thing.

Source: Impactful Creative, compiled from how secondary sanctions operate as described on this page and the glossary entries on secondary sanctions and economic coercion

How does the sanctioned side get around sanctions?

Every workaround aims at the same thing: removing the hook. That can mean settling in another currency, changing the flag and the insurer, routing the trade through a third-country entity, or processing the raw material into a different product before export.

The shadow fleet is the most concrete example: ageing tankers that change flags and owners frequently, carry insurance of uncertain provenance, and mostly move restricted crude. What it evades is not a navy but the systems of insurance and classification.

Each workaround has a price: higher freight, dearer cover, longer voyages, bigger discounts. So the question about sanctions is rarely whether they work; it is how much cost they add. The discount is itself evidence that they still bite.

What does this mean for a Taiwanese company?

First, define the compliance perimeter by the hooks, not by where the offices are. The question to ask is what currency settles the trade, which banks it passes through, and whose technology it contains, not whether you have a presence in the country.

Second, follow the end user downstream. Sanctions and export controls share a difficulty: many firms can see only their first-tier customer, while the test applies further down.

Third, banks and insurers tend to withdraw before regulators act. A company usually learns of the problem not from an official notice but from a letter of credit that will not be issued or cover that will not be written. That is not economic coercion but the sum of many parties hedging separately, though the outcome is the same for whoever is caught in it.

Sources

U.S. Treasury, Office of Foreign Assets Control (OFAC), OFAC Guidance on Implementation of the Price Cap Policy for Crude Oil of Russian Federation Origin, 22 Nov 2022
U.S. Treasury, Office of Foreign Assets Control (OFAC), 10. What jurisdictions or countries are sanctioned by the United States?, 21 Aug 2024
U.S. Treasury, Office of Foreign Assets Control (OFAC), 11. Who must comply with OFAC sanctions?, 21 Aug 2024
U.S. Treasury, Office of Foreign Assets Control (OFAC), OFAC Settles with Sojitz (Hong Kong) Limited for $5,228,298 Related to Apparent Violations of the Iranian Transactions and Sanctions Regulations, 11 Jan 2022
U.S. Department of the Treasury, The Price Cap on Russian Oil: A Progress Report, 18 May 2023
U.S. Treasury, Office of Foreign Assets Control (OFAC), Updated Guidance for Foreign Financial Institutions on OFAC Sanctions Authorities Targeting Support to Russia’s Military-Industrial Base, 12 Jun 2024
Yale School of Management, Chief Executive Leadership Institute, Over 1,000 Companies Have Curtailed Operations in Russia—But Some Remain, 28 Jan 2024
Council of the European Union, EU sanctions against Russia: questions and answers, 12 Oct 2026

Terms used here

Secondary Sanctions — Sanctions imposed on third parties for dealing with a sanctioned party. The aim is a chilling effect rather than the punishment of particular transactions: to protect their access to dollar clearing, global financial institutions pre-emptively avoid anything that might touch the target. Enforcement therefore rests mainly on banks’ own risk aversion and needs little case-by-case investigation by regulators.
Economic Coercion — Using trade, investment, or market access as leverage to force concessions on non-economic issues. The typical methods are deliberately deniable: quarantine inspections suddenly intensified, customs clearance inexplicably slowed, tour groups cancelled, none of it formally acknowledged as retaliation. That deniability is the point, since an unacknowledged measure is hard to bring to the WTO or elsewhere as a justiciable dispute.
Extraterritorial Jurisdiction — A state applying its law to conduct abroad. The usual hooks are settlement in its currency, the presence of its technology in a product, and the use of its financial and information infrastructure. For companies, staying out of a country’s market is therefore no defence against its law: compliance scope has to follow the origin of the technology and the money, not the location of operations.
Shadow Fleet — Ageing tanker fleets operated to evade sanctions, marked by frequent changes of flag and name, AIS transponders switched off, ship-to-ship transfers on the high seas, and opaque insurance. They create two distinct risks at once: a gap in sanctions enforcement, and the chance that an old, inadequately insured vessel causes an environmental accident in sensitive waters.